Innovative Ways to Fund Renewable Energy and Energy Efficiency
• By Jessica C. Lumpkin, Associate Editor
Funding customer renewable energy and energy efficiency has always been a struggle. While these investments have a direct impact on the electric system by raising rates, historically, they have been made by customers. The rationale is simple – customers benefit from these investments in their homes, so customers should pay for them. However, renewable energy and energy efficiency also can benefit the utility, and customer base as a whole, and utilities should also consider this value.
“While funding is always a challenge, the good news is that there are a variety of ways to fund renewable energy and energy efficiency programs through tax credits, rebates and other incentives to customers,” said Barry Moline, executive director at the Florida Municipal Electric Association (FMEA).
Many utilities offer rebates—a subsidy–to lower the cost of a solar project or a high-cost energy efficiency product. Most energy efficiency rebates help lower the cost of the most efficient product in a line, such as refrigerators or air conditioners. Generally, the most efficient product is also the most expensive. Rebates allow vendors to direct people toward these energy efficient products with a “special offer,” with the amount of the rebate just enough to move a buyer to purchase that most efficient product.
Rebates should be set by determining the cost per kWh of new power supply, where the amount of the rebate should be below the cost of investing in a new power plant or power supply contract. For example, let’s say the difference between the most efficient refrigerator and one less efficient will save 100 kWh per year. Assume the refrigerator will last 10 years, so the savings over 10 years will be 1,000 kWh. The question then becomes, how much would the utility spend to generate that 1,000 kWh in that same time frame? The rebate should be set below that amount. Furthermore, if there are capacity savings for peak demand reduction, those should also be considered and monetized.
The City of Winter Park offers rebates to customers for installing energy conservation measures at their home or business. “The sustainability office took over administration of the residential energy efficiency and conservation rebate program last year,” said Abby Gulden, sustainability & permitting coordinator for the City of Winter Park. “It has been revised to incentivize high-impact, low cost energy saving measures, including insulation upgrade and duct repair.”
Winter Park is currently engaged in the Georgetown University Energy Prize, a national competition to help spur changes to its rebate program. “During the course of the competition we have increased the focus on municipal and residential energy use,” said Gulden.
Gainesville Regional Utilities (GRU) encourages customers to use its rebate program by investing in energy efficient appliances and other upgrades to help manage energy, water use, save money, and improve their comfort at home. “The rebate programs help us to reduce greenhouse gas emissions, decrease our impact on the environment and increase the use of renewable sources,” said Tiffany Small, senior marketing and communications specialist. “As customers’ interest in green pricing and green products grows, so does GRU’s commitment to promoting energy saving of natural resources.”
Since its inception in 2007, GRU’s Low-Income Energy Efficiency Program (LEEP) has helped to enhance the quality of life of its low-income customers through free energy efficiency upgrades. “These upgrades have assisted customers in lowering their electric bills, improving comfort and managing their energy use,” said Small. “On average, the program provides $4,000 in upgrades which are performed by GRU’s LEEP Partnering Contractors. Eligible participants work directly with us to determine the improvements that best suit their home.” Along with improvements, GRU provides personalized in-home training to educate customers on other ways to save energy and water
“GRU currently has net energy metering for photovoltaic solar (PV) systems,” said Small. “Customers who invest in renewable energy by installing PV systems on their homes can interconnect with the GRU electric system and receive credit for the solar energy they do not use. Customers are reimbursed for the excess electricity generated by their PV system.”
“GRU’s rebate and incentive programs also have a positive impact on our customers,” said Small. “It gives them the opportunity to afford reliable and energy efficiency products at a cost-effective price. With the rebates and continued education, customers are empowered to take control of their utility bills and usually see significant long-term savings.”
The City of Tallahassee (COT) offers rebate programs to promote solar water, Energy Star-certified appliances, and natural gas appliances. The utility also offers rebates for electric heating, ventilation and air conditioning (HVAC) systems including central air conditioners, heat pumps and water heaters, explained Bob Seaton, energy consultant, utility customer operations. “What we have in common with many rebate programs across the country is that we have a pen and paper application process,” said Seaton. “The rebate program reduces how fast power is being demanded. The speed of demand determines how fast or how big of a power plant is needed. It also reduces energy use which means that it lowers customers’ costs, and promotes a wider and better utilization of appliances that are at the highest level of energy efficiency community-wide.”
Many renewable energy and energy efficiency measures cost a lot of money. A new refrigerator might be $1,500; the most efficient air conditioner could be $8,000; solar panels cost about $16,000. Most homeowners don’t have available funds for these big-ticket investments that will save them money in the long run with lower bills. “Loans provide up-front money to pay for the installation and allow the customer to make payments that should be lower than the savings from the efficiency measure itself,” said FMEA’s Moline. “In this manner, while a homeowner might not have the money for the outright purchase, they could afford smaller monthly payments that are lower than the savings. In this way, everyone wins. The customer gets lower net bills, and the utility receives the benefit of a more reliable power supply.”
COT’s energy efficiency loan program for residential and commercial property owners allows customers to pay their loan back on their utility bill. “We lend for 30 different measures, the most popular being big-ticket items like air conditioners, furnaces, and water heaters, or things that can break down and need replacement to a customer in a hurry,” said Seaton. “The loan program is very helpful for individuals who do not have large amounts of cash readily available.”
“In order to participate in the energy efficiency loan program, customers must participate in a short telephone conversation with a loan officer,” said Seaton. “Customers receive guidance, their eligibility is quickly determined, and the loan officer goes on the next step.” According to Seaton, typically customers seek out a proposal for the appliance needing to be replaced. “Customers then provide us with a copy of their contractor’s proposal, and a copy of their deed proving property ownership,” said Seaton. “There’s no loan application. Instead, we use these two important documents and our existing customer records to fill out an application for the customer.”
“Our energy efficiency loan program eligibility requirement is home ownership,” said Seaton. “It can be a home with a mortgage at the bank, but the owner of record has to be the loan applicant.” Every person on the deed becomes a loan applicant, and must have a good utility payment history,” Seaton explained. “We don’t do a conventional credit check. Instead, we just look at our own utility records for payment history. We have a numerical credit rating internal to the utility’s billing system. Bounced checks or a succession of late payments determines an applicant’s eligibility.”
According to Seaton, COT also requires that the equipment proposed to be installed meets the efficiency criteria required of the loan program. “Customers have to pass the required inspection by whichever local jurisdiction has authority,” said Seaton. “We do not offer a loan for equipment that is installed before the customer’s application is approved.”
COT’s energy efficiency loan program is both residential and commercial. “Commercial entities are different in that 49% of commercial customers do not own the property on which their building sits,” said Seaton. “Because of that, they are not eligible for the loan program. We require property ownership for both residential and commercial properties.”
In Lakeland, the REEnergize Lakeland Finance program is an option for Lakeland Electric (LE) customers who wish to upgrade their homes to become more energy efficient. “REEnergize Lakeland is a revolving loan fund that provides owner-occupied homeowner customers access to funds to retrofit their homes with energy efficiency projects,” said Roger Lewis, manager of legislative affairs. “Energy efficient windows, HVAC systems, air sealing, insulation, solar PV, and solar water heater systems are some of the projects that are eligible for the loans.”
“The program was initially capitalized in 2010 with $250,000 from the Energy Efficiency and Conservation Block Grant awarded to Lakeland as part of the American Recovery and Reinvestment Act,” said Lewis. “When the initial round of loans expended this funding in less than six months, LE contributed an additional $200,000 administered separately from the federal funds to enable additional customers to take advantage of the program. This resulted in significant energy savings for our customers through lower electric bills.
“Funds that have been formerly committed are repeatedly loaned as payments are received,” said Lewis. “Typically, this allows from eight to twelve new loans per quarter.” The program works by extending a zero interest loan from $500 up to $5,000 to qualified homeowners to install one or more upgrades from a pre-approved list of contractors. “After completing an approved project, the recording fee and loan payments will be assessed on customer’s monthly LE utility bill, and must be paid in addition to all other charges on the bill. Applicants are required to execute a mortgage and corresponding promissory note to secure loan repayment which serves as a lien on the customer’s property until the loan is paid in full.”
“The program has contributed to LE customers’ enhanced knowledge of the practical advantages of energy efficient retrofits in their residential homes,” said Lewis. “Customers see reduced electric bills as a result of their own investment in energy efficiency. They don’t have to pay interest on the bulk of this personal investment—just as the LE brochure states on the cover, ‘Zip, Zilch, Zero, Nothing, Nada % Interest-Free Loans for Home Energy Improvements.’”
“In order to take advantage of the program, customers complete and submit an application, and then contact a contractor to submit a project and cost proposal to LE,” said Lewis. “Customers must adhere to strict timelines to take advantage of the program. This is to prevent funds from being held for customers who will ultimately not use it.”
“Any utility can replicate this program with a relatively modest initial capitalization,” said Lewis. “With the increasing emphasis on energy efficiency and clean energy, such a program will be instrumental in successfully meeting future challenges to meet aggressive goals.”
Sustainable Tallahassee is an organization whose mission is to promote environmental stewardship and economic development. The Community Carbon Fund (CCF), a project of Sustainable Tallahassee, is a non-utility program used to deploy energy efficiency improvements. “The carbon fund provides multiple benefits simultaneously,” said FMEA’s Moline. “From the charitable perspective, the carbon fund is a great example of thinking locally and acting globally. Contributions are used to lower the costs of local charities, and if you think globally, those same contributions are helping to address climate change issues.”
“The CCF is a four-pronged benefit for our community,” said Steve Urse, volunteer and former chair for the fund. “It reduces the amount of carbon emissions in the environment, reduces utility costs for non-profit social service agencies that serve the poor or disadvantaged, and impacts the local economy by keeping donated funds in our community through the use of local contractors on projects. Further, donations can offset one’s carbon footprint—a calculation of greenhouse gas emissions data unique to one’s home or business, and are tax deductible to the extent permitted by law.”
The CCF began with donations from individuals and $10,000 from the City of Tallahassee. According to Urse, those funds, along with a grant from Wal-Mart, were used to budget the programs first projects. “About 18 months later after those first projects were complete, we received $10,000 from Leon County, and participated in the Alternative Christmas Market raising an additional $3,000,” said Urse. “We used those funds to implement more projects. Once that was complete, Leon County offered $10,000 if we could raise $10,000. We did that and more—budgeting, and implementing more projects.”
Today the CCF receives government funds, as well as business, non-profit, and individual donations. “We raised funds in the Alternative Christmas Market for three years now,” said Urse. “Budgeting is dependent upon money raised, and currently we are in the midst of raising money for projects in 13 rent-free scholarship houses.”
According to Urse, contributions to the CCF have been used to help local non-profit organizations lower energy use and reduce emissions by improving and upgrading their buildings. “We seek to assist non-profit organizations who serve low-income, disadvantaged or disenfranchised individuals and families in the Tallahassee and Leon County area,” said Urse. “Those non-profit organizations benefit from an immediate reduction in utility costs that continues each year, freeing up more of their funds to be used to serve the needy.”
“The funds are used solely in our own community, making our Carbon Fund unique,” said Urse. “Keeping local funds in the community creates jobs for our economic benefit. We leverage community resources—both public and private, to implement projects that lower energy use and reduce carbon emissions in the Tallahassee area.”
“Sustainable Tallahassee’s Community Carbon Fund committee manages the donated funds,” said Urse. “The committee solicits project requests, requires energy audits, evaluates the carbon reduction impact of project requests, evaluates the utility cost savings of project requests, and leverages the donated funds to accomplish more by arranging for donated materials and taking advantage of local energy rebates. Some donated funds are used for tree planting for carbon sequestration—to capture carbon throughout the long lifetime of the trees.”
The Solar and Energy Loan Fund (SELF) is a home improvement financing program that offered its first loan in Florida in April 2010. “We offer financing, but we are not a profit-lending organization,” said Doug Coward, SELF’s executive director. SELF is a non-profit community lending organization that provides favorable financing for assorted home improvements that can help save money on operating costs, increase equity and home value, improve hurricane resistance, and enhance comfort and livability. “Our mission is to provide financing for sustainable building practices, energy efficiency, renewable energy, wind-hazard mitigation and water conservation projects.”
“SELF began in St. Lucie County and we’re scaling the program statewide, region by region as we build partnerships and relationships with contractors, governments, and others,” said Coward. “SELF is comprised of three divisions: The Community Development Financial Institution, which provides financing for residential, and low to moderate income communities, the Property Assessed Clean Energy (PACE) program, which provides financing for non-residential property owners, and our innovative worldwide crowdfunding program that is aimed at providing financing for single mothers and veterans.”
SELF is able to provide financing for people with less-than-stellar credit. “We don’t just lend for this purpose, but almost two-thirds of our lending occurs in low and moderate income areas where people don’t have traditional financing solutions,” said Coward. “Our current lending capital requirements are lower than a bank, so we provide financing for people who are declined by traditional lenders. We’re helping people who would typically have to go to a payday lender with below-market rate financing. This puts people in position to overcome outright costs for retrofits and take advantage of the technology and the savings.”
“Interested applicants should come to us with an existing problem that needs to be fixed, or if you have an older house or building with a lot of different needs, we will do an assessment to help identify what needs to be done,” said Coward. “Then we begin to prioritize the most cost-effective weatherization projects. Our focus is helping those folks who do not have traditional financing options.”
“We’re not here to issue bad loans or take people’s money,” said Coward. “SELF is a non-profit community lending organization, and we’re here to help.”
PACE is offered by a variety of organizations in Florida and is aimed at providing non-residential financing. “PACE financing is the key to unlocking the clean energy economy in Florida,” said Doug Coward, SELF’s executive director. “You need more than one program in order to provide finance options to all of the community sectors. The PACE program provides financing for multi-family, commercial, industrial and non-profits.”
Unlike an unsecured loan that requires a credit check to evaluate one’s ability to repay the loan, PACE is a land-secured assessment which means that the equity in the property is what serves as the collateral for the loan. “Let’s say that you are a business owner,” said Coward, “and your property is worth $200,000 with an outstanding mortgage of $100,000. That means that you have $100,000 of equity in the property. That equity is what would be used to secure the financing. The PACE financier would place up to $100,000 available for retrofits on that property based on sufficient equity to back the assessment instead of having to go through a lengthy credit check. Property owners repay the loan as a part of their tax bill.”
“Florida developed the PACE program in 2010, and the state legislature passed what is broadly described as PACE enabling legislation—which means that they legalized it in the state, but made it optional so that local governments could develop the program if they want to,” said Coward. “Out of the 475 local governments in Florida, there are 30 to 40 local governments that have taken some steps to develop this program.”
PACE is a complex and detailed program with several providers across Florida. We will discuss this program in greater detail in the next issue of Relay.
For more information on these programs, visit publicpower.com/FundingEnergy